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Li & Fung (Photo credit: Wikipedia)

Each year I sit in on the deliberations that produce Forbes Asia's Fabulous 50 companies list, a select bunch of enterprises in the Asia-Pacific region with either $3 billion in sales or market capitalization. The statistical methodology is explained with the release of our latest roster, but let me tell you, it gets more involved than that.

A good two-thirds of the list select themselves on the basis of performance, while also fitting within our criteria for majority private ownership and no significant government favoritism. The rest are closer calls--still within a top financial category, but weighed against very recent results or prospects in the near term. Although the Fab 50 turns over at a healthy clip, we aim to include companies that will be sustained all-stars. (And in that, we mostly succeed. In the next 50 names each year, which you don't see, are many of the listees from previous years--still good performers, just not good enough.)

Let me mention a couple of the toughest calls from this year. One is Li & Fung, the Hong Kong-headquartered supply-chain manager for apparel and other products. The company has been one of our most frequent repeaters. This year, as we were compiling the Fab 50, it suffered an earnings slip. blamed by analysts on both the current global economic pause and on reshufflings by big retailers to try to cut out the middlemen on product sourcing. That suggests harder times will continue for Li & Fung. However, on the basis of what we've come to learn about the company, we were inclined to give the benefit of the doubt--we think it will get enough things right to benefit from the next cyclical upturn.

Another case was Samsung Electronics. The big patent case loss to Apple on mobile devices came just after we'd done our due diligence, but obviously we were aware of the exposure. We think the Korean company's famously hypercompetitive ways will be undaunted by this legal setback. A bigger hurdle, you might say, was Samsung's very size. It's easily the largest company on our list by revenues, and that makes comparative growth measurres a hard pull. You could argue that one or two smaller entities within the Samsung group had outperformed the huge Electronics flagship. When you adjust for size constraints, though, it's just apparent to us that this behemoth belonged in a list of Asia's best--come what may as a result of the courtroom drama.

I should note that in the past we have been cautious over red flags. Another sizable Asian manufacturer, Hon Hai Electronics (aka Foxconn), was a steady Fab 50 listee (in fact, recognized by us ahead of most media) until it developed problems at its plants in mainland China. These didn't just include labor-force grievances (manifested, it was said, in a few suicides) but cost woes as Hon Hai sought to satisfy clients. We backed away from the Taiwan company a few years ago and sure enough its financials faded. Those have begun to look up again, even with the gravitational pull of a big revenue base holding back percentage gains. We will continue to exercise judgment on this estimable giant.

Another thing we'll be watching is how the ownership of major Chinese corporations may shift. In particular, Yunnan Baiyao, a high-performing pharmaceutical maker, is on the cusp of Fab 50 consideration. However, its powerful provincial backers have resisted efforts by billionaire Chen Fashu to acquire a portion of stock that would likely move the company into a "majority private" status. In China's evolving economy, that could change.

These are just a few of the factors in play behind the scenes at the Fab 50 selection. Enjoy the list!